NU PHARMALOGICS PRIVATE LIMITED ,SECUNDERABAD vs. INCOME TAX OFFICER, WARD-16(2), HYDERABAD

The assessee has raised the following grounds of appeal for the A.Y 2011-12:

The assessee has raised additional grounds of appeal at S.Nos.24 to 28 along with a petition for admission of additional grounds:

The learned AR of the assessee has submitted that the additional grounds of appeal raised by the assessee are purely legal in nature and arising from the facts which are on record, therefore, for adjudication of additional grounds, no new facts or record are required to be examined. He has pleaded that the additional grounds raised by the assessee may be admitted for adjudication. In support of his contention, he has relied upon the judgement of the hon Supreme Court in the case of NTPC vs. CIT (229 ITR 383) (S.C).

On the other hand, the learned DR has objected to the admission of the additional grounds of appeal and submitted that the assessee has not explained the reasons for not raising these grounds before the authorities below as to why the assessee was prevented from raising these grounds.

The issue raised in the additional ground of appeal is purely in legal and goes to the root of the matter therefore, we first take up the additional grounds for hearing and adjudication. At the time of hearing, the learned DR has referred to the paper book filed by the Department and submitted that the notice u/s 143(2) of the I.T. Act, 1961 was duly issued by the Assessing Officer on 31/08/2017 placed at page 7 of the paper book and therefore, the question of validity of the assessment order for want of notice u/s 143(2) of the Act does not arise. At the outset, we note that in response to the notice u/s 148 of the Act, the assessee filed a letter dated 21/03/2017 stated that the original return of income filed on 22/09/2011 may be treated as return filed in response to notice u/s 148 of the I.T. Act, 1961. The Assessing Officer stated in the order that notice u/s 143(2) was issued to the assessee, a copy of which has been filed by the learned DR as under:

The learned AR of the assessee has not brought any contrary fact or record to show that the Assessing Officer has not issued the notice u/s 143(2) of the I.T. Act, 1961. Accordingly, in view of the fact when the Assessing Officer issued a notice u/s 143(2) of the Act on 31/08/2017 which was also sent to the assessee through speed post, then the additional ground raised by the assessee are found to be devoid of any merit and hence dismissed.

Ground Nos. 1 to 3 are general in nature and do not require any specific adjudication.

Ground No. 4 is regarding validity of notice u/s 147 of the I.T. Act, 1961 for want of approval u/s 151 of the Act.

We have heard the learned AR and the learned DR and considered the relevant material on record. The learned DR has filed a copy of the approval u/s 151 of the Act by the Pr. CIT-4, Hyderabad which was communicated to the Assessing Officer vide covering letter dated 23/02/2017. Therefore, it is apparent from record that the approval was taken by the Assessing Officer before issuing notice u/s 148 dated 27/02/2017 placed at page 5 of the paper book. The assessee has filed the reply to the said notice vide letter dated 21/03/2017 placed at page No.6 of the paper book filed by the learned DR as under:

Thus, it is clear that the notice u/s 148 dated 27/02/2017 was issued after the approval of the Pr. CIT and communicated to the Assessing Officer vide letter dated 23/02/2017. Therefore, we do not find any merit in the ground No.4 of assessee’s appeal, hence the same is dismissed.

The assessee has challenged the addition made by the Assessing Officer u/s 68 of the I.T. Act, 1961 on account of share application money received from 3 companies namely, Everlink Commotrade Pvt. Ltd (Rs.50,00,000/-), K.D.K Food Grains Pvt. Ltd (Rs.61,50,000/-) and Manomay Foods Beverages Pvt. Ltd (Rs.55,00,000/-). He has further contended that the Assessing Officer without considering the documents and relevant evidence filed by the assessee, has made this addition on the basis of the information received from Investigation Wing, Mumbai. He has further contended that the assessee company is maintaining all the supporting evidence towards share application money received which were also placed in the paper book. However, the documents were not examined by the Assessing Officer regarding the identity of these companies, as the assessee has filed the PAN, their confirmation as well as extracts of their financial statements showing these transactions, duly recorded in their books of account. In support of his contention, he has relied upon the decision of the Hon'ble Supreme Court in the case of Lovely Exports Pvt Ltd (216 CTR 195) as well as the judgments in the cases of Vaishnodevi Refoils & Solvex (96 Taxmann.com 469),

On the other hand, the learned DR has submitted that once the Assessing Officer has received the information from the Investigation Wing that these companies are working as conduit of Shri Shirish C. Shah who was found involved in providing accommodation entries of Long-Term Capital Gain, share application money etc., then the burden was shifted on the assessee to prove that the transactions of share application money as genuine and the share applicants were having the capacity to make the said investment. He has further submitted that the Assessing Officer issued notice u/s 133(6) of the Act, but the same were received back unserved with the remarks as not found at the place, except in one case where despite the service of notice, no reply was filed by the Company, Everlink Commotrade (P) Ltd. Thus, the existence of the companies was also doubtful and therefore, the Assessing Officer was justified in making the addition.

We have considered the rival submissions as well as the relevant material available on record. The Assessing Officer made the addition on the basis of information received from the Investigation Wing, Mumbai revealing the fact that during the search & seizure operation in the case of Shri Shirish C. Shah, it was found that the share applicant companies from whom the Page 15 of 24 assessee has received the share application money were only conduit of Shri Shirish C. Shah in providing accommodation entries. Thus, the said information received by the Assessing Officer was a good reason for doubting the transaction of share application money received by the assessee. However, the Assessing Officer ought to have conducted a proper inquiry before arriving to the conclusion that the transactions are bogus. Though the Assessing Officer issued notices u/s 133(6) of the Act to these companies which were received back unserved except in one case, however, once the assessee has produced the relevant documentary evidence which includes the bank account statement of the companies, confirmation of these companies accepting the investments made in shares of the assessee company through banking channels and PAN as well as ledger account copies of these investor companies, then the Assessing Officer ought to have conducted further inquiries to verify the documents produced by the assessee. In any case, the identity of these companies are not in dispute as the Investigation Wing itself has given the particulars of these companies and further the assessee has also produced the proof of existence of these companies as acknowledgments of the return of income and PAN of these companies. However, the creditworthiness of those companies and genuineness of these transactions ought to have been verified by conducting a proper investigation/inquiry by the Assessing Officer instead of merely relying on the information received from the Investigation Wing, Mumbai. Therefore, in the Page 16 of 24 facts and circumstances of the case and in the interest of justice, we are of the considered view that this matter requires a proper verification and examination at the level of the Assessing Officer. Accordingly, the impugned order of the learned CIT (A) is set aside and the matter is remanded to the record of the Assessing Officer for fresh adjudication after conducting proper inquiry in respect of the documents filed by the assessee. The assessee has also raised the issue of validity of reopening of the assessment which has to be considered by the Assessing Officer before passing the fresh order. Needless to say, the assessee shall be given proper opportunity of hearing before passing the fresh order.

In the result, Grounds 5 to 19 by the assessee are allowed for statistical purposes.

Ground No.1 is general in nature and does not require any specific adjudication.

Ground Nos. 2 to 9 are regarding the addition made by the Assessing Officer u/s 68 of the I.T. Act, 1961 on account of share application money, share premium and share capital which was confirmed by the learned CIT (A).

We have heard the rival submissions as well as relevant material available on record. The issue involved in this appeal for A.Y i.e. 2012-13 is identical to the issue involved in the appeal for A.Y 2011-12. Therefore, in view of our finding on an identical issue for the A.Y 2011-12, this issue is set aside to the record of the Assessing Officer on the same terms.

Ground No. 10 is regarding disallowance made by the Assessing Officer u/s 43B of the I.T. Act, 1961 for non-payment of VAT on or before the due date of filing of the return of income.

We have heard the learned AR as well as the learned DR considered the relevant material available on record. The Assessing Officer has made an addition of Rs.86,490/- in para 4 as under:

Thus, the Assessing Officer has made addition of the said amount shown as VAT payable for want of proof of payment of the same before the due date of filing the return of income. The learned AR has submitted that the VAT payable shown in the balance sheet was duly paid to the Govt. Account before the due date of filing of the return of income and therefore, the addition made by the Assessing Officer is unjustified.

On the other hand, the learned DR has submitted that the assessee has not produced any documentary proof to show that the VAT outstanding as on 31/03/2012 was paid to the Govt. Account on or before the due date of filing of the return of income. He has relied upon the orders of the authorities below.

Having considered the rival submission and in view of the claim of the assessee that the VAT payable was paid before the due date of filing the return of income, this issue is remanded to the record of the Assessing Officer for verifying these facts and then decide the same as per law.

Ground No.11 is regarding the addition of Rs.4800/- towards difference in the sales and purchase.

The Assessing Officer has made an addition of Rs.4800/- towards difference in the sales and purchase made by the assessee. The learned AR of the assessee has submitted that the assessee has duly filed the reconciliation statement reconciling the difference between the amount that has been reflected in the financial statements as well as in sale tax return, wherein there is no variation. He has further submitted that the Assessing Officer without appreciating the information produced through reconciliation statement has made this addition. Thus, he has pleaded that the addition made by the Assessing Officer on this account may be deleted.

The learned DR, on the other hand, has submitted that the assessee has not produced any details in respect of this difference in the purchase and sales made during the year.

Having considered the rival submissions, at the outset we note that the Assessing Officer has made addition in para No.6 of the assessment order as under:

Thus, the Assessing Officer has recorded the fact that the assessee has filed the reconciliation, however, the Assessing Officer noted that the purchase and sale was having difference of Rs.4800/-. Accordingly, this issue is also remanded to the record of the Assessing Officer for re-adjudication after giving an opportunity of hearing to the assessee to explain and reconcile the difference in the sales and purchase as per the financial statements vis-à-vis sales tax return.